So the Senate seems poised to move forward on financial reform. On Monday Chairman Chris Dodd of the Senate Finance Committee approved a 1336 page bill aimed at preventing the next financial meltdown. There are many important provisions in the bill, including shareholder rights, the Kanjorski Amendment authorizing prudential divestitures, a new consumer protection regime, derivatives regulation and new hedge fund regulations. All of this is good news.Yet, on the flip side there is still much cause for concern. The lobbyists seemed equally poised to water down the bill, with the US Chamber of Commerce alone prepared to spend $3 million to lobby against the bill. Moreover, it is interesting that the bank index considers the bill a non-event.
So, I suppose it is a step in the right direction. Yet, I have this sinking feeling that it is Sarbanes-Oxley all over again. A step in the right direction that will do little to stop the next meltdown.
There are significant concerns with the most recent Sen. Dodd initiative at financial reform. In today's Washington Post, columnist Steven Pearlstein aptly wrote the following: "There are so many political accommodations involving carve-outs and size limits and overlapping responsibilities that it creates exactly the kind of complexity, the opportunities for regulatory arbitrage and the lack of accountability that got us into this mess in the first place. It's worth remembering that many of the credit-default swaps that contributed to the recent crisis were originally devised by banks as a way around the old Depression-era law meant to keep banks out of the securities business, and by insurance companies looking to avoid insurance regulation.
ReplyDeleteFinancial regulation works best when the rules and structures are simple and straightforward and regulators are invested with discretion for achieving broadly stated goals. Obviously, such an approach requires trust in the competence, integrity and reasonableness of regulators, which as we all know cannot be guaranteed. But, at the end of the day, if you can't trust the regulators, the system is doomed to fail, no matter how the law is written."
Sen. Dodd’s latest version of his financial reform bill leaves it to bank regulators to protect borrowers from predatory lenders. His current proposal gives a great deal of discretion in regulation to the Fed. However, at a press conference in November of ’09, Sen. Dodd said, "[o]ver the last number of years when [the Fed] took on consumer-protection responsibility and regulation of bank holding companies, it was an abysmal failure." Sen. Dodd’s settling on the Fed, among other regulators like the FDIC, seems like a political concession and the standalone consumer protection agency free from political interference doesn’t seem like a viable option.
ReplyDeleteSenator Dodd's reform efforts are a start in the prevention of the next financial meltdown. It brings a sigh of relief that action is being taken to prevent future financial meltdowns. However, it is unlikely that his efforts will actually prevent another financial disaster. In fact, the financial reform bill may even cause more difficulties in the financial world with its complexities.
ReplyDeleteThe financial institutions that would be affected by financial reform simply have too much money to spend on lobbying to allow Congress to pass a strong financial reform bill. These Congressmen propose a bill with energy and an aim to what seems to be a big change in the way American opperates, yet, enter the lobbyist and these congressmen seem to relax a little bit. I think these congressmen come out with most of these bills just to collect from lobbyist. Seriously, its kind of a joke if you ask me.
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